CORPORATE AND PROFESSIONAL UPDATE FEBRUARY 29, 2016

CORPORATE & PROFESSIONAL UPDATE FEBRUARY 29, 2016

INCOME TAX ACT

SECTION 2(22)

DEEMED DIVIDENDS

Loans and advances to shareholders : Where assessees P and S were directors in two sister companies, namely AE and AI, and AI received Rs. 10 lakh as loan from AE, it would be treated as deemed dividend under section 2(22)(e) in hands of P and S in proportion to their shareholdings in AI – [2016] 190 (Delhi – Trib.)

SECTION 32

DEPRECIATION – ALLOWANCE/RATE OF

Plant : Expenditure incurred by assessee-AOP on acquiring trademarks, copyright and know-how of erstwhile firm would come within definition of ‘plant’ and, thus, assessee’s claim for depreciation in respect of same was to be allowed – [2015]  400 (SC)

SECTION 37(1)

BUSINESS EXPENDITURE – ALLOWABILITY OF

Legal expenses : Where erstwhile firm’s business was purchased as going concern by assessee-AOP formed by some partners of erstwhile-firm, legal expenses subsequently incurred by AOP for defending business of going concern and for protecting its interests were to be allowed as deduction under section 37(1) – [2015]  400 (SC)

SECTION 92C

TRANSFER PRICING – COMPUTATION OF ARM’S LENGTH PRICE

Comparables and Adjustments/Adjustments – Interest : Where extended credit period to A.E. for realisation of sale proceeds is directly related to and arising out of sale transaction, sale transaction with A.E. and resultant extended credit period for realisation of sale proceeds being two sides of a coin, are closely linked transactions, and, thus, transaction relating to extra credit period to A.E. has to be aggregated with sale transactions for determining ALP – [2016]  216 (Mumbai – Trib.)

Comparables and adjustments/Adjustments – AMP expenses : Where TPO applied bright line test to benchmark AMP transactions which was not valid in view of Sony Ericsson Mobile Communications India (P.) Ltd. v. CIT [2015] 374 ITR 118/231 Taxman 113/55 taxmann.com 240 (Delhi), matter was remanded to apply ratio of said case – [2016]  218 (Mumbai – Trib.)

SECTION 260A

HIGH COURT – APPEALS TO

Scope of : In absence of substantial question of law being framed, High Court can not upset final finding of fact arrived at by Tribunal – [2015] 400 (SC)

SECTION 268A

FILING OF APPEAL OR APPLICATION FOR REFERENCE BY INCOME-TAX AUTHORITIES

Circular No. 21/2015 : Where tax effect in appeals filed by revenue before Tribunal was less than Rs. 10 lakhs in each case, in view of instructions of CBDT Circular No. 21/2015, dated 10-12-2015 appeals so filed by revenue were to be dismissed as not maintainable – [2016] 189 (Pune – Trib.)

• Expenditure on research is revenue nature if no new product develops, irrespective of treatment in books [D.C.I.T. vs Autoline Industries Ltd (ITAT Pune), ITA No.1711/PN/2012].
• Demand not sustainable when show cause notice issued is time barred [Spectra Fashions (2016)(41) STR 184 Calcutta High Court].
• Commitment charges paid towards foreclosure of business agreement are allowable u/s 37 [D.C.I.T. vs Autoline Industries Ltd (ITAT Pune), ITA No.1711/PN/2012].
• Assessment in the name of non-existent entity is void ab initio, legal objection can be raised at any time before higher authorities [Sapient Consulting Limited vs. DCIT (ITAT Delhi), ITA No.1728/DEL/2014 & 1306/DEL/2015].
• Voluntary contributions received by assessee towards corpus cannot be brought to tax, even if Trust is not registered u/s 12AA [Income Tax Officer -Vs- M/s. Vokkaligara Sangha (ITAT Bangalore), I.T.A. Nos.281 to 285/Bang/2014].
• Recovery of out of pocket costs incurred by society from ultimate beneficiaries of grant not taxable in the hands of society [ITO vs. Haryana Renewable Energy (ITAT Chandigarh), IT Appeal No. 896/2009, AY 2006-07].
• IT:Credit of taxes paid and set off of MAT credit as per the provisions of Sec-115JAA -AO directed to compute pro rata quantification of the demerged undertaking MAT TDS and advance tax credits as per law -Adani Gas Ltd. Vs. ACIT, Ahd (ITAT Ahmedabad)
• IT:Deemed dividend u/s 2(22)(e) – exempted capital gains shall not enter the stream of the expression accumulated profits and the company BKFCPL has got only negative accumulated profits after exclusion of exempted capital gains and hence the provisions of section 2(22)(e) cannot be invoked – Sri Manoj Murarka Vs. ACIT, Cir-35, Kol (ITAT Kolkata)
• Payments made as reimbursement towards shared technology services not subject to TDS u/s 195 [DCIT vs. M/s AT & S India (P) Ltd. (ITAT Kolkata), IT Appeal No. 1160 & 2305 of 2013].
• Profit on Sale of Share immediately after conversion from Stock in Trade to Investment is Business Income [Indo Stosec (P) Ltd. vs. Income-Tax Officer (ITAT Mumbai), Appeal No. I.T.A No. 3472/Mum/2010].
• Validity of order passed u/s. 143(3) read with section 144C(13) – the final order should have been passed on or before 30.11.2014 but the same has been passed on 30.01.2015 which is clearly beyond the period of limitation as prescribed u/s. 144C – the order is s bad in law ab initio- IHG IT Services (India) Pvt. Ltd. Versus D.C.I.T., Circle-2, Gurgaon. – 2016 (1) TMI 932 – ITAT DELHI
• Nexus between the revenue earned and cost incurred – ascertaining whether a service has actually benefitted the taxpayer or not is not within the prerogative of the Tax Authorities. To avail a service or not is a commercial decision which cannot be challenged by the Tax Authorities- Avery Dennison (India) P. Ltd. Versus ACIT (OSD) , CIT-1, New Delhi. and Vica-Versa – 2016 (1) TMI 933 – ITAT DELHI
• When the trading by the assessee company is accepted by the Revenue as incidental to its main business during the earlier years the income cannot be treated as income from other sources rather it is a business income- (Escolife IT Services Pvt. Ltd., C/o Escorts Ltd. Versus ITO, Co. Ward 11 (2) , New Delhi – 2016 (1) TMI 867 – ITAT DELHI)
• Additional modes of generating Electronic verification code (EVC) have been notified in addition to EVC notified vide earlier notification no. 2/2015 dated 13/07/2015. The two additional modes are i) By Pre validating Bank account details and ii) By pre validating demat account details referring notification no. 1/2016 dated 19/01/2016.
• Charging of late fee u/s 234E while processing the return u/s 200A – While processing the return u/s 200A of the Act the ld.AO cannot impose levy of fees under section 234E- (M/s Kanak Castor Products Pvt. Ltd. Versus Deputy Commissioner of Income Tax, (CPC) -TDS, Ghaziabad – 2016 (1) TMI 866 – ITAT AHMEDABAD)
• Security services by Trust in confirmation to its objects for general public utility will be considered as “charitable” in Nature [Gujarat Industrial Security Force Society vs. Dy. DIT (Exemption), ITAT Ahmedabad, ITA 2726/Ahd/2010].
• AO issuing original assessment order can only initiate reopening proceedings [Dushyant Kumar Jain vs. DCIT (Delhi High Court), W.P(C) 1569/2015 & CM No.2800/2015, AY 2007-08].
• Depreciation will be considered while calculating net worth for computing Capital Gain in slump sale u/s 50B [CIT vs. Dharampal Satyapal (Delhi High Court), ITA 1003/2011, AY 2001-02, Date of Judgment: 06/01/2016].
• Notice issued or assessment made post receiving direction u/s 124 from CIT to transfer the case is invalid [Raj Kumar Mangla Vs ACIT (ITAT Delhi); I.T.A No. 556-558/Del/2011].
• Penalty u/s 271(1)(c) cannot be levied in absence of intention to evade taxes and if treatment made by assessee was revenue neutral [Goldfilled Mercantile Company vs. DCIT (ITAT Mumbai),IT Appeal No.-1965/2014].
• License/ Royalty fees to facilitate Trading Operation and Effective Management is Revenue in Nature [DCIT vs. Hitz FM Radio India Ltd., ITAT Delhi, ITA 3685/Del/2013].

INDIRECT TAX:

• ST: Self adjustment of excess service tax paid towards payment of service tax during the subsequent period – appellants had not intimated the said adjustment to the department – Demand of duty and penalty set aside – levy of penalty of ₹ 5000/- u/s 77 upheld – M/s. L&T Sargent & Lundy Ltd. Vs. CCE&ST, Vadodara (CESTAT Ahmedabad)
• VAT & ST: Premature recovery proceedings where there is time to an appeal – No precipitative action would be taken if the petitioner would file an appeal within the period prescribed for it – Vijay Tanks & Vessels Pvt. Ltd. Vs. State of Karnataka, Dy. Commissioner of Commercial Taxes (Audit-3) , State Bank of Sourashtra (Karnataka High Court)
• Club or Association Services : collection of subscription from their members during the period 2005-06 – This issue is no more res-integra in view of various decisions of the Honble Gujarat High Court and the Tribunal – Demand set aside- M/s Gujarat State Federation of Co-Operative Sugar Factories Ltd. Versus Commissioner of Central Excise And Service Tax, Ahmedabad – 2016 (1) TMI 885 – CESTAT AHMEDABAD
• Circular No. 30 of 2015-16 dated 18/11/2015 specifying conditions for issuance of statutory forms has been partially modified vide Circular dated 27.01.2016. The facility of auto-downloading of the forms shall not be available to the dealer for the tax period in cases in which the ratio of sale to purchase, including stock transfer and local transactions, falls below 45%. In such cases, forms shall be available for auto downloading on the basis of sale and purchase of next quarter. Click here to view Circular.
• Supply of tangible goods: revenue was of the view that allowing use of such capital assets amounts to providing of services namely supply of tangible goods service. – stay granted partly- M/s Dabur Research Foundation Versus Commissioner Of Central Excise And Service Tax, Ghaziabad – 2016 (1) TMI 888 – CESTAT ALLAHABAD
• Territorial Jurisdiction SCN issued by Mumbai Office of Service Tax Department for whole of India offices -The Commissioner should have refrained from adjudicating and instead could have initiated the process of making show cause notice answerable to the jurisdictional Commissioners or he should have written to the Central Board of Excise and Customs seeking power to adjudicate the case of services rendered pan India- (Inox Leisure Ltd. Versus Commissioner of Service Tax, Mumbai – 2016 (1) TMI 850 – CESTAT MUMBAI)
• Import of services pouring fees and signing fees – clearly the service activity involved is not sale of space and time as contended by the appellant. What is sold is the right to advertise and promote the product of the CCIPL –   Appellant provided BAS to its client CCIPL on which tax is payable- (Inox Leisure Ltd. Versus Commissioner of Service Tax, Mumbai – 2016 (1) TMI 850 – CESTAT MUMBAI)

COMPANY LAW

• Query: If someone is incorporating a company and wants to sale hardware parts of computer and also wants to run an educational institution. Does he need to have 2 companies for the activities or he can add both in main objects of the companies.
• Answer: He is required to form two new companies –one with objects relating to the hardware parts of Computer & other incidental work related with the main object and another company with objects relating to educational institution.

A single company cannot be formed with two purely parallel objectives.

• Query: Can CSR funds be utilized to fund Government scheme?
• Answer: The objective of this provision is indeed to involve the Corporates in discharging their social responsibility with their innovative ideas and management skills and with greater efficiency and better outcomes. Therefore CSR should not be interpreted as a source of financing the resource gaps in Government Scheme. Use of corporate innovations and management skills in the delivery of ‘public goods’ is at the core of CSR implementation by the companies. In-principle, CSR fund of companies should not be used as a source of funding Government Schemes.
• MCA allows vague, not related to object/ activity/ person, misleading impression giving name application vide Notification No. G.S.R.  (E).- dated 22.01.2016.

SECTION 108

TRANSFER OF SHARES – NOT TO BE REGISTERED EXCEPT ON PRODUCTION OF INSTRUMENT OF TRANSFER

Where there was no evidence on record to establish that share transfer deed was executed by petitioner transferring his shares, shareholding of petitioner in company was to be restored – [2016] 223 (CLB – New Delhi)

SECTION 284

DIRECTORS – REMOVAL OF

Where no special notice as per section 284(2) was given for holding EGM to remove petitioner as director of company, his removal was patently illegal – [2016] 223 (CLB – New Delhi)

SECTION 399

OPPRESSION AND MISMANAGEMENT – RIGHT TO APPLY

Petition for rectification of register of member alleging illegal transfer of petitioner’s share could not be challenged on ground of lack of required member of shareholding – [2016] (CLB – New Delhi)

SECTION 433

WINDING UP – CIRCUMSTANCES IN WHICH COMPANY MAY BE WOUND UP

Where there was no privity of contract between petitioner and respondent-company, and respondent had also not acknowledged its debt, it was not liable to make any payment to petitioner, hence petition for winding up respondent-company at instance of petitioner was not maintainable – [2016] (Gujarat)

COMPETITION ACT

SECTION 4

PROHIBITION OF ABUSE OF DOMINANT POSITION

Mere recruitment of pilots by an airline by another airline will not bring about structural changes in the operations of the market, rules CCI – [2016] (CCI)

SERVICE TAX

SECTION 65(25)

TAXABLE SERVICES – CLEARING AND FORWARDING AGENT’S SERVICES

Agents procuring orders and exploring potential customers for their principal are more appropriately classifiable under ‘Business Auxiliary Services’ and not under ‘Clearing and Forwarding Agent’s services’ – [2016] (Chennai – CESTAT)

CST & VAT

SECTION 11 OF GUJARAT VALUE ADDED TAX ACT, 2003

TAX INCIDENCE AND LEVY – TAX CREDIT

Where assessee purchased castor oil seeds for manufacture of castor oil and after crushing same obtained castor oil as well as deoiled cake (waste) and it used deoiled cake in furnace as a fuel in manufacture of castor oil, action of Assessing Authority in disallowing input tax credit for use of deoiled cake was not proper – [2016] (Gujarat)

CENVAT CREDIT RULES

RULE 9

CENVAT CREDIT – DOCUMENTS ON WHICH CREDIT MAY BE TAKEN

Where there is no dispute about receipt of material and payment of duty thereon, credit taken based on ‘endorsed bill of entry’ is valid – [2016] (Mumbai – CESTAT)

STATUTES

INDIRECT TAX LAWS (ST./EX./CUS. & (CST & VAT))

Delhi VAT -Framing of central assessments – CIRCULAR NO.38 OF 2015-16 [NO.F.3(636)/POLICY/VAT/2016/1463-69], DATED 18-2-2016

OTHER UPDATES

• Inadvertent mentioning of wrong assessee code does not invalidate payment [Devang Paper Mills Pvt Ltd Vs UOI (Gujarat High Court); Special Civil Application No. 12264 of 2015].
• Recovery cannot be made from bonfide purchaser of Duty Free Import Authorisation (DFIA)/Duty Entitlement Pass Book (DEPB) license – CESTAT.
• Kerala High Court states retrospective provisions of payment of Bonus (Amendment) Act, 2015
• Drawback/Refund available on re-export of defective goods [Ronak Optic India (2016 (41) STR 184 Calcutta High Court].
• Custom valuation Rule 4 will not apply if import is without monetary consideration [M/s GMR Energy Ltd vs. Commissioner of Customs (Supreme Court of India); Civil Appeal No.4920 of 2007 and Civil Appeal No.3594 of 2008].
• In valuation of Flats given to Land owners, board circular would prevail over Education Guide.

KEY DATES

• Return of TDS for December quarter in DVAT-48 – 28/01/2016
• Issue of TDS/ TCS certificate (Form16A/ 27D) for Quarter ended December – 30/01/2016
• 30.01.2016 (Saturday) is Last Date for Form16A/27D (Issue of TDS/TCS certificate) for Q3 of 2015-16 by All Deductors. Government Deductors to issue by 15-02-2016.
• Due date of DVAT Return of third quarter extended to 05.02.2016 [No.F.7(420)/VAT /Policy/ 2011/PF/1380-85, Circular No. 36 of 2015-16].
• Filing of DVAT Return Verification Form (DVAT-56) for Quarter ended December where return not signed with digital signature- 28/01/2016

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